Burger King is in talks to buy doughnut chain Tim Hortons and create a new holding company headquartered in Canada, a move that could shave its tax bill.
Such an overseas shift, called a tax inversion, has become increasingly popular among U.S. companies and a hot political issue. Burger King was founded in 1954 with a single restaurant in Miami, where it is currently based.
Shares of Burger King and Tim Hortons both jumped 17 percent before the opening bell, heading toward all-time highs.
In a tax inversion, a U.S. company reorganizes in a country with a lower tax rate by acquiring or merging with a company there. Inversions also allow companies to transfer money earned overseas to the parent company without paying additional U.S. taxes. That money can be used to reinvest in the business or to fund dividends and buybacks, among other things.
Companies like AbbVie, a pharmaceutical with its headquarters just outside Chicago, have tied up with companies overseas to achieve that type of tax cut. More recently, Walgreen backed away from such a plan under intense pressure and criticism at home.
Burger King and Tim Hortons cautioned on Sunday that there was no guarantee a deal would happen, and it's not clear exactly how much a tie-up would reduce Burger King's tax costs. But a recent report by KPMG found that total tax costs in Canada are 46.4 percent lower than in the United States.
Burger King said its majority owner, investment firm 3G Capital, would own the majority of shares of the new company if a deal were to happen.
3G Capital, which has offices in Brazil and New York, is known for its aggressive cost-cutting. The firm bought Burger King in 2010 and went to work trimming overhead costs and revamping operations before taking the chain public again in 2012. Last year, 3G also teamed with Berkshire Hathaway Inc. to take H.J. Heinz Co. private in a $23 billion deal, and has been cutting costs there as well.
Tim Hortons, known for its doughnuts and coffee, has been paired with U.S. fast-food chains in the past. It was purchased by Wendy's International Inc. in 1995. Then in 2006 it completed an initial public offering and was spun off as a separate company.
Burger King and Tim Hortons say the deal would also allow the doughnut chain to accelerate its growth in international markets. The company had 4,546 restaurants at the end of June, with 3,630 in Canada, 866 in the U.S. and 50 in the Persian Gulf area.
The companies say Burger King Worldwide Inc. and Tim Hortons Inc., based in Ontario, would continue to operate as separate brands but would share corporate services. The talks were first reported by The Wall Street Journal.
The new company would have 18,000 restaurants in 100 countries with about $22 billion in sales, which the companies say would make it the world's third-largest fast-food restaurant company.
Burger King's stock surged $4.29, to $31.40 before the market opened Monday. Shares reached an all-time high of $68.95 on Friday.
Shares of Tim Hortons jumped $10.66 to $73.50 before the opening bell. Shares of the Canadian company also hit an all-time high Friday at $68.95.